Hi-Tek Manufacturing Inc. makes two types of industrial component parts—the B300 and the T500. An absorption costing income statement for the most recent period is shown below:

Hi-Tek produced and sold 60,000 units of B300 at a price of $20 per unit and 12,600 units of T500 at a price of $40 per unit. The company’s traditional cost system allocates manufacturing overhead to products using a plantwide overhead rate and direct labor dollars as the allocation base. Additional information relating to the company’s two product lines is shown below:

The company has created an activity-based costing system to evaluate the profitability of its products. Hi-Tek’s ABC implementation team concluded that $52,000 and $102,000 of the company’s advertising expenses could be directly traced to B300 and T500, respectively. The remainder of the selling and administrative expenses was organization-sustaining in nature. The ABC team also distributed the company’s manufacturing overhead to four activities as shown below:

Required

1. Compute the product margins for the B300 and T500 under the company’s traditional costing system. (Do not round your overhead rate. Round your other intermediate and final answers to the nearest whole number.)

2. Compute the product margins for B300 and T500 under the activity-based costing system. (Negative product margins should be indicated by a minus sign. Round your intermediate calculations to 2 decimal places.)

3. Prepare a quantitative comparison of the traditional and activity-based cost assignments. (Do not round your overhead rate. Round your other intermediate calculations and final answers to the nearest whole number. Round your "Percentage" answer to 1 decimal place. (i.e. .1234 should be entered as 12.3))

Meca Concrete purchased a mixer on January 1, 2016, at a cost of $39,600. Straight-line depreciation for 2016 and 2017 was based on an estimated eight-year life and $2,400 estimated residual value. In 2018, Meca revised its estimate and now believes the mixer will have a total service life of only six years, and that the residual value will be only $1,400. Compute annual depreciation for 2018 and 2019.

Annual depreciation for 2018 and 2019-

Northwood Company manufactures basketballs. The company has a ball that sells for $25. At present, the ball is manufactured in a small plant that relies heavily on direct labor workers. Thus, variable expenses are high, totaling $15.00 per ball, of which 60% is direct labor cost.

Last year, the company sold 48,000 of these balls, with the following results:

Required:

1. Compute (a) last year's CM ratio and the break-even point in balls, and (b) the degree of operating leverage at last year’s sales level.

2. Due to an increase in labor rates, the company estimates that next year's variable expenses will increase by $3.00 per ball. If this change takes place and the selling price per ball remains constant at $25.00, what will be next year's CM ratio and the break-even point in balls?

3. Refer to the data in (2) above. If the expected change in variable expenses takes place, how many balls will have to be sold next year to earn the same net operating income, $161,000, as last year?

4. Refer again to the data in (2) above. The president feels that the company must raise the selling price of its basketballs. If Northwood Company wants to maintain the same CM ratio as last year (as computed in requirement 1a), what selling price per ball must it charge next year to cover the increased labor costs?

5. Refer to the original data. The company is discussing the construction of a new, automated manufacturing plant. The new plant would slash variable expenses per ball by 40.00%, but it would cause fixed expenses per year to double. If the new plant is built, what would be the company’s new CM ratio and new break-even point in balls?

6. Refer to the data in (5) above.

a. If the new plant is built, how many balls will have to be sold next year to earn the same net operating income, $161,000, as last year?

b. Assume the new plant is built and that next year the company manufactures and sells 48,000 balls (the same number as sold last year). Prepare a contribution format income statement and Compute the degree of operating leverage.

The Spokane Recycling Company (SRC) purchases old water and soda bottles and recycles them to produce plastic covers for outdoor furniture. The company processes the bottles in a special piece of equipment that first​ melts, then reforms the plastic into large sheets that are cut to size. The edges from the cut pieces are sold for use as package filler. The filler is considered a byproduct. SRC can produce 27 table​ covers, 77 chair covers and 9 pounds of package filler from 100 pounds of bottles.

In June, SRC had no beginning inventory. It purchased and processed 110,000 pounds of bottles at a cost of $ 880,000. SRC sold 22,000 table covers for $11 each, 77,000 chair covers for $12 each, and 4,000 pounds of package filler at $0.90 per pound.

Requirement 1. Assume that SRC allocates the joint costs to table and chair covers using the sales value at splitoff method and accounts for the byproduct using the production method. What is the ending inventory cost for each product and gross margin for SRC?

​First, allocate the joint costs. ​(Round the weighting values to two decimal​ places.)

Now complete the statement below for SRC.

​(Do not round intermediary calculations. Only round the amount you input in the cell to the nearest​ dollar.)

Requirement 2. Assume that SRC allocates the joint costs to table and chair covers using the sales value at splitoff method and accounts for the byproduct using the sales method. What is the ending inventory cost for each product and gross margin for SRC?

​First, allocate the joint costs. ​(Round the weighting values to two decimal​ places.)

Now complete the statement below for SRC

​(If a box is not used in the​ table, leave the box​ empty; do not enter a zero. Do not round intermediary calculations. Only round the amount you input in the cell to the nearest​ dollar.)

C&S Marketing (CSM) recently hired a new marketing director, Jeff Otos, for its downtown Minneapolis office. As part of the arrangement, CSM agreed on February 28, 2018, to advance Jeff $50,000 on a one-year, 8 percent note, with interest to be paid at maturity on February 28, 2019. CSM prepares financial statements on June 30 and December 31.

Prepare the journal entry CSM will make when the note is established, accrue interest on June 30 and December 31, and the interest and principal payments on February 28, 2019. (If no entry is required for a transaction/event, select "No Journal Entry Required" in the first account field. Do not round intermediate calculations. Round your final answers to whole dollar amount.)

On January 1, 20X8, Liv Ltd. (LL), a Canadian company, acquired 90% of Marcus Co. (MC), a foreign company for FC 623,200. At the acquisition date, the carrying value of MC’s net assets equaled their fair value except for the equipment, which had a carrying value of FC 800,000 and a fair value of FC 880,000. At the acquisition date, MC’s equipment had a remaining useful life of 10 years. There was an FC 4,000 impairment of the goodwill which occurred evenly throughout 20X8.

Selected financial statements for LL and MC are presented below.

Liv Ltd.

Statement of Financial Position
As of December 31, 20X8

(in $ CDN)

Assets:
Noncurrent assets:
Plant and equipment, net 2,752,000
Investment in Marcus Co. 1,371,040
4,123,040

Current assets:

Inventory   1,376,000
Accounts receivable 700,000
Cash and cash equivalents 562,080

2,638,080
Total assets 6,761,120

Shareholders’ Equity:

Share capital 1,376,000
Retained earnings 2,601,520
3,977,520
Liabilities:
Noncurrent liabilities:

Notes payable 1,860,000

Current liabilities:

Accounts payable and accrued liabilities    923,600
Total liabilities 2,783,600
Total shareholders’ equity and liabilities 6,761,120

Liv Ltd.

Statement of Income

For the year ended December 31, 20X8

(in $ CDN)

Sales 16,472,000

Dividend income   180,080

= 16,652,080

Cost of sales 8,256,000
Other expenses* 7,124,000 (15,380,000)

Net income 1,272,080

*includes depreciation

LL declared and paid dividends of $928,000 CDN on December 31, 20X8.

Marcus Co.

Statement of Financial Position

(in FC)

Dec. 31, Jan. 1
20X8 20X8

Assets:

Noncurrent assets:

Equipment, net 720,000 800,000

Current assets:

Inventory    484,000 364,000

Accounts receivable 408,000 280,000

Cash 360,000 164,000

1,252,000 808,000   

Total assets 1,972,000 1,608,000

Shareholders’ equity:

Share capital 400,000. 400,000
Retained earnings 390,000 146,000

= 790,000 = 546,000

Liabilities:

Noncurrent liabilities:

Notes payable 640,000 640,000

Current liabilities:

Accounts payable 542,000 422,000

Total liabilities 1,182,000. 1,062,000

Total shareholders’ equity and liabilities 1,972,000 1,608,000

Marcus Co.

Statement of Income

For the year ended December 31, 20X8

(in FC)

Sales 8,400,000
Cost of sales 5,304,000
Other expenses* 2,688,000 (7,992,000)

408,000

*includes depreciation

Marcus Co.

Statement of Changes in Equity – Retained Earnings Section

For the year ended December 31, 20X8

(in FC)

Retained earnings, January 1, 20X8 146,000
Net income 408,000

Dividends declared (164,000)

Retained earnings, December 31, 20X8 = 390,000

MC declared and paid FC164,000 in dividends on December 31, 20X8.

Selected Exchange Rates

January 1, 20X8 FC1 = $2.20 CDN
December 31, 20X8 FC1 = $2.44 CDN

Date when ending inventory was purchased FC1 = $2.38 CDN

Average rate for 20X8 FC1 = $2.32 CDN

Required:

1. Prepare consolidated financial statements at December 31, 20X8 under each of the following assumption
   1. The function current is the FC

Menlo Company distributes a single product. The company’s sales and expenses for last month follow:

Required:

1. What is the monthly break-even point in unit sales and in dollar sales?

2. Without resorting to computations, what is the total contribution margin at the break-even point?

3-a. How many units would have to be sold each month to attain a target profit of $32,400?

3-b. Verify your answer by preparing a contribution format income statement at the target sales level.

4. Refer to the original data. Compute the company's margin of safety in both dollar and percentage terms.

5. What is the company’s CM ratio? If sales increase by $74,000 per month and there is no change in fixed expenses, by how much would you expect monthly net operating income to increase?

Exercise 7-48 (Algorithmic) Depreciation Methods Berkshire Corporation purchased a copying machine for $9,800 on January 1, 2019. The machine's residual value was $1,175 and its expected life was 5 years or 2,000,000 copies. Actual usage was 480,000 copies in the first year and 462,000 in the second year. Required: 1. Compute depreciation expense for 2019 and 2020 using the: a. Straight-line method. Depreciation expense: $fill in the blank 1 per year b. Double-declining-balance method. Depreciation Expense 2019 $fill in the blank 2 2020 $fill in the blank 3 c. Units-of-production method. (Do not round intermediate calculations. Round your final answers to the nearest whole dollar.) Depreciation Expense 2019 $fill in the blank 4 2020 $fill in the blank 5 2. For each depreciation method, what is the book value of the machine at the end of 2019? At the end of 2020? If required, round your answers to the nearest whole dollar. 2019 2020 a. Straight-line method $fill in the blank 6 $fill in the blank 7 b. Double-declining-balance method $fill in the blank 8 $fill in the blank 9 c. Units-of-production method $fill in the blank

10 $fill in the blank 11

9.

Profitability Ratios

The following selected data were taken from the financial statements of Vidahill Inc. for December 31, 20Y7, 20Y6, and 20Y5:

The 20Y7 net income was $24,350, and the 20Y6 net income was $13,570. No dividends on common stock were declared between 20Y5 and 20Y7. Preferred dividends were declared and paid in full in 20Y6 and 20Y7.

a. Determine the return on total assets, the return on stockholders' equity, and the return on common stockholders’ equity for the years 20Y6 and 20Y7. Round percentages to one decimal place.

On January 1, 20X8, Liv Ltd. (LL), a Canadian company, acquired 90% of Marcus Co. (MC), a foreign company for FC 623,200. At the acquisition date, the carrying value of MC’s net assets equaled their fair value except for the equipment, which had a carrying value of FC 800,000 and a fair value of FC 880,000. At the acquisition date, MC’s equipment had a remaining useful life of 10 years. There was an FC 4,000 impairment of the goodwill which occurred evenly throughout 20X8.

Selected financial statements for LL and MC are presented below.

Liv Ltd.

Statement of Financial Position
As of December 31, 20X8

(in $ CDN)

Assets:
Noncurrent assets:
Plant and equipment, net 2,752,000
Investment in Marcus Co. 1,371,040
4,123,040

Current assets:

Inventory   1,376,000
Accounts receivable 700,000
Cash and cash equivalents 562,080

2,638,080
Total assets 6,761,120

Shareholders’ Equity:

Share capital 1,376,000
Retained earnings 2,601,520
3,977,520
Liabilities:
Noncurrent liabilities:

Notes payable 1,860,000

Current liabilities:

Accounts payable and accrued liabilities    923,600
Total liabilities 2,783,600
Total shareholders’ equity and liabilities 6,761,120

Liv Ltd.

Statement of Income

For the year ended December 31, 20X8

(in $ CDN)

Sales 16,472,000

Dividend income   180,080

= 16,652,080

Cost of sales 8,256,000
Other expenses* 7,124,000 (15,380,000)

Net income 1,272,080

*includes depreciation

LL declared and paid dividends of $928,000 CDN on December 31, 20X8.

Marcus Co.

Statement of Financial Position

(in FC)

Dec. 31, Jan. 1
20X8 20X8

Assets:

Noncurrent assets:

Equipment, net 720,000 800,000

Current assets:

Inventory    484,000 364,000

Accounts receivable 408,000 280,000

Cash 360,000 164,000

1,252,000 808,000   

Total assets 1,972,000 1,608,000

Shareholders’ equity:

Share capital 400,000. 400,000
Retained earnings 390,000 146,000

= 790,000 = 546,000

Liabilities:

Noncurrent liabilities:

Notes payable 640,000 640,000

Current liabilities:

Accounts payable 542,000 422,000

Total liabilities 1,182,000. 1,062,000

Total shareholders’ equity and liabilities 1,972,000 1,608,000

Marcus Co.

Statement of Income

For the year ended December 31, 20X8

(in FC)

Sales 8,400,000
Cost of sales 5,304,000
Other expenses* 2,688,000 (7,992,000)

408,000

*includes depreciation

Marcus Co.

Statement of Changes in Equity – Retained Earnings Section

For the year ended December 31, 20X8

(in FC)

Retained earnings, January 1, 20X8 146,000
Net income 408,000

Dividends declared (164,000)

Retained earnings, December 31, 20X8 = 390,000

MC declared and paid FC164,000 in dividends on December 31, 20X8.

Selected Exchange Rates

January 1, 20X8 FC1 = $2.20 CDN
December 31, 20X8 FC1 = $2.44 CDN

Date when ending inventory was purchased FC1 = $2.38 CDN

Average rate for 20X8 FC1 = $2.32 CDN

Required:

1. Prepare consolidated financial statements at December 31, 20X8 under each of the following assumption
   1. The function current is the FC

10.

1. Six Measures of Solvency or Profitability

   The following data were taken from the financial statements of Gates Inc. for the current fiscal year.

   Property, plant, and equipment (net)						$2,127,400
   Liabilities:
   	Current liabilities			$194,000
   	Note payable, 6%, due in 15 years			967,000
   	Total liabilities					$1,161,000
   Stockholders' equity:
   	Preferred $4 stock, $100 par (no change during year)					$1,161,000
   	Common stock, $10 par (no change during year)					1,161,000
   Retained earnings:
   	Balance, beginning of year	$1,238,000
   	Net income	451,000		$1,689,000
   	Preferred dividends	$46,440
   	Common dividends	94,560		141,000
   	Balance, end of year					1,548,000
   Total stockholders' equity						$3,870,000
   Sales						$23,053,500
   Interest expense						$58,020

   Assuming that total assets were $4,779,000 at the beginning of the current fiscal year, determine the following. When required, round to one decimal place.

   a. Ratio of fixed assets to long-term liabilities
   b. Ratio of liabilities to stockholders' equity
   c. Asset turnover
   d. Return on total assets	%
   e. Return on stockholders’ equity	%
   f. Return on common stockholders' equity	%

On January 1, 20X8, Liv Ltd. (LL), a Canadian company, acquired 90% of Marcus Co. (MC), a foreign company for FC 623,200. At the acquisition date, the carrying value of MC’s net assets equaled their fair value except for the equipment, which had a carrying value of FC 800,000 and a fair value of FC 880,000. At the acquisition date, MC’s equipment had a remaining useful life of 10 years. There was an FC 4,000 impairment of the goodwill which occurred evenly throughout 20X8.

Selected financial statements for LL and MC are presented below.

Liv Ltd.

Statement of Financial Position
As of December 31, 20X8

(in $ CDN)

Assets:
Noncurrent assets:
Plant and equipment, net 2,752,000
Investment in Marcus Co. 1,371,040
4,123,040

Current assets:

Inventory   1,376,000
Accounts receivable 700,000
Cash and cash equivalents 562,080

2,638,080
Total assets 6,761,120

Shareholders’ Equity:

Share capital 1,376,000
Retained earnings 2,601,520
3,977,520
Liabilities:
Noncurrent liabilities:

Notes payable 1,860,000

Current liabilities:

Accounts payable and accrued liabilities    923,600
Total liabilities 2,783,600
Total shareholders’ equity and liabilities 6,761,120

Liv Ltd.

Statement of Income

For the year ended December 31, 20X8

(in $ CDN)

Sales 16,472,000

Dividend income   180,080

= 16,652,080

Cost of sales 8,256,000
Other expenses* 7,124,000 (15,380,000)

Net income 1,272,080

*includes depreciation

LL declared and paid dividends of $928,000 CDN on December 31, 20X8.

Marcus Co.

Statement of Financial Position

(in FC)

Dec. 31, Jan. 1
20X8 20X8

Assets:

Noncurrent assets:

Equipment, net 720,000 800,000

Current assets:

Inventory    484,000 364,000

Accounts receivable 408,000 280,000

Cash 360,000 164,000

1,252,000 808,000   

Total assets 1,972,000 1,608,000

Shareholders’ equity:

Share capital 400,000. 400,000
Retained earnings 390,000 146,000

= 790,000 = 546,000

Liabilities:

Noncurrent liabilities:

Notes payable 640,000 640,000

Current liabilities:

Accounts payable 542,000 422,000

Total liabilities 1,182,000. 1,062,000

Total shareholders’ equity and liabilities 1,972,000 1,608,000

Marcus Co.

Statement of Income

For the year ended December 31, 20X8

(in FC)

Sales 8,400,000
Cost of sales 5,304,000
Other expenses* 2,688,000 (7,992,000)

408,000

*includes depreciation

Marcus Co.

Statement of Changes in Equity – Retained Earnings Section

For the year ended December 31, 20X8

(in FC)

Retained earnings, January 1, 20X8 146,000
Net income 408,000

Dividends declared (164,000)

Retained earnings, December 31, 20X8 = 390,000

MC declared and paid FC164,000 in dividends on December 31, 20X8.

Selected Exchange Rates

January 1, 20X8 FC1 = $2.20 CDN
December 31, 20X8 FC1 = $2.44 CDN

Date when ending inventory was purchased FC1 = $2.38 CDN

Average rate for 20X8 FC1 = $2.32 CDN

Required:

1. Assume that LL is a private company and reports under ASPE. LL uses the equity method to report its investment in MC. LL’s functional currency is $CAD. Calculate LL’s Investment in Marcus Co.’s account at December 31, 20X8. There is no need to prepare financial statements.

Allocating Joint Costs Using the Sales-Value-at-Split-Off Method Orchard Fresh, Inc., purchases apples from local orchards and sorts them into four categories. Grade A are large blemish-free apples that can be sold to gourmet fruit sellers. Grade B apples are smaller and may be slightly out of proportion. These are packed in boxes and sold to grocery stores. Apples for slices are even smaller than Grade B apples and have blemishes. Apples for applesauce are of lower grade than apples for slices, yet still suitable for canning. Information on a recent purchase of 20,000 pounds of apples is as follows: Assume that Orchard Fresh, Inc., uses the sales-value-at-split-off method of joint cost allocation and has provided the following information about the four grades of apples: Grades Pounds Price at Split-Off (per lb.) Grade A 1,800 $4.00 Grade B 5,000 1.00 Slices 8,000 0.50 Applesauce 5,200 0.10 Total 20,000 Total joint cost is $18,000. Required: 1. Allocate the joint cost to the four grades of apples using the sales-value-at-split-off method. Round your allocation percentages to four decimal places and round the allocated costs to the nearest dollar. Joint Cost Grades Allocation Grade A $ Grade B Slices Applesauce Total $ 2. What if the price at split-off of Grade B apples increased to $1.20 per pound? How would that affect the allocation of cost to Grade B apples? How would it affect the allocation of cost to the remaining grades? Round your allocation percentages to four decimal places and round the allocated costs to the nearest dollar. Joint Cost Grades Allocation Grade A $ Grade B Slices Applesauce Total $

The Matsui Lubricants plant uses the FIFO method to account for its work-in-process inventories. The accounting records show the following information for a particular day:

Beginning WIP inventory

Direct materials $ 1,000

Conversion costs 437

Current period costs

Direct materials 15,995

Conversion costs 13,992

Quantity information is obtained from the manufacturing records and includes the following:

Beginning inventory 400 units (70% complete as to materials, 55% complete as to conversion)

Current period units started 5,100 units

Ending inventory 1,300 units (50% complete as to materials, 20% complete as to conversion)

Compute the cost of goods transferred out and the ending inventory using the FIFO method. (Do not round intermediate calculations.)

Problem 13-6 Various contingencies [LO13-5, 13-6]

Eastern Manufacturing is involved with several situations that possibly involve contingencies. Each is described below. Eastern’s fiscal year ends December 31, and the 2018 financial statements are issued on March 15, 2019.

1. Eastern is involved in a lawsuit resulting from a dispute with a supplier. On February 3, 2019, judgment was rendered against Eastern in the amount of $107 million plus interest, a total of $122 million. Eastern plans to appeal the judgment and is unable to predict its outcome though it is not expected to have a material adverse effect on the company.
2. In November 2017, the State of Nevada filed suit against Eastern, seeking civil penalties and injunctive relief for violations of environmental laws regulating hazardous waste. On January 12, 2019, Eastern reached a settlement with state authorities. Based upon discussions with legal counsel, the Company feels it is probable that $140 million will be required to cover the cost of violations. Eastern believes that the ultimate settlement of this claim will not have a material adverse effect on the company.
3. Eastern is the plaintiff in a $200 million lawsuit filed against United Steel for damages due to lost profits from rejected contracts and for unpaid receivables. The case is in final appeal and legal counsel advises that it is probable that Eastern will prevail and be awarded $100 million.
4. At March 15, 2019, Eastern knows a competitor has threatened litigation due to patent infringement. The competitor has not yet filed a lawsuit. Management believes a lawsuit is reasonably possible, and if a lawsuit is filed, management believes damages of up to $33 million are reasonably possible.

   
Required:
1. Determine the appropriate means of reporting each situation.
2. Prepare the appropriate journal entries for these situations.